Daiwa Securities Group Inc. Q2 FY2026 earnings call

Financial Overview:

• Consolidated net operating revenues reached ¥223.9 billion (up 1.6% QoQ).
• Ordinary income declined to ¥78.2 billion (down 11.2% QoQ) primarily due to lower capital gains.
• Profit attributable to owners of parent was ¥51.4 billion (down 8.8%).
• Annualized Return on Equity (ROE) stood at 11.3%.
• Base profit, a key performance indicator for stable earnings, reached ¥62.3 billion (up 41.9% YoY), totaling ¥125.2 billion in H1, exceeding 80% of the medium-term target.

Wealth Management Strengths:

• Asset-based revenues hit a record high of ¥38.3 billion, driven by strong inflows into equity investment trusts and fund-wrapped services.
• Net asset inflows totaled ¥312.6 billion, marking the 11th consecutive quarter of positive flows.
• WRAP account contract value reached a quarterly record of ¥418.2 billion, with AUM climbing to an all-time high of ¥6,946.9 billion.
• Dayo NextBank posted record highs in net interest income (¥13.4 billion) and original income (¥7.8 billion).
• Oryx Bank, consolidated this quarter, contributed ¥6.7 billion to ordinary income after goodwill amortization.

Global Markets & Investment Banking:

• Global Markets captured institutional flows despite global stock market declines; FICC domestic business remained solid, though overseas FICC suffered from rising US rates.
• Global Investment Banking achieved profit growth driven by debt underwriting and domestic M&A activity.

Operational Updates:

• SG&A expenses increased to ¥152.9 billion (up 7.1%) due to the consolidation of Oryx Bank, impacting trading-related, personnel, and depreciation costs.
• Interim dividend set at a record high of ¥39 per share (50.3% payout ratio).
• Management views current market corrections as temporary, emphasizing that client demand for long-term asset building remains strong.

Wealth Management Division: Net operating revenues were ¥99.2 billion (up 12.5% QoQ), and ordinary income was ¥39.7 billion (up 6.6%). This segment contributed significantly to the group's stability, with asset-based revenues hitting a record high of ¥38.3 billion. Global Markets and Investment Banking Division: Split into two sub-segments. Global Markets posted net operating revenues of ¥45.7 billion (down 15.1%) and ordinary income of ¥11.1 billion (down 38.6%). Global Investment Banking posted net operating revenues of ¥23.4 billion (up 3.4%) and ordinary income of ¥4.0 billion (up 22.7%). Asset Management Division: Securities Asset Management had net operating revenues of ¥22.9 billion (up 7.9%) but ordinary income fell to ¥12.8 billion (down 18.3%) due to valuation losses. Real Estate Asset Management reported net operating revenues of ¥12.0 billion (down 9.7%) and ordinary income of ¥9.8 billion (down 0.3%). Alternative Asset Management recorded net operating revenues of ¥3.0 billion and ordinary income of ¥1.2 billion.

• No specific quantitative full-year revenue or profit guidance revisions were explicitly stated in this transcript beyond the ongoing achievement of the medium-term management plan targets.
• Management highlighted that Base Profit for the first half already exceeded 80% of the ¥150 billion medium-term target, indicating confidence in meeting annual goals.
• The interim dividend was raised to a record ¥39 per share, signaling a commitment to shareholder returns despite the decline in ordinary income.
• Strategic focus remains on maintaining wealth management as the core growth engine while expanding asset management AUM and leveraging new lending capabilities from Oryx Bank.

• Market Volatility Impact: Flow-based revenues declined due to market volatility, correction in tech stocks, and rising interest rates affecting client activity.
• Overseas Performance Headwinds: Global markets faced challenges in overseas FICC due to rising U.S. interest rates and difficult portfolio management, leading to decreased client flows.
• Valuation Losses: The Securities Asset Management division recorded valuation losses on certain assets, contributing to a significant drop in ordinary income despite higher AUM.
• Expense Inflation: Consolidation of Oryx Bank led to higher SG&A expenses, including trading-related costs, personnel expenses, and depreciation, temporarily pressuring margins.
• Alternative Asset Underperformance: Alternative asset management faced losses from renewable energy-related investments and lower realized gains from investment exits.

Q: How did the consolidation of Oryx Bank impact the financial results, specifically regarding expenses and profitability? / A: The consolidation increased SG&A expenses to ¥152.9 billion, up 7.1%, driven by higher trading-related, personnel, office, and depreciation costs associated with Oryx Bank. Despite these expense increases, Oryx Bank contributed positively to the Wealth Management Division’s ordinary income, posting ¥8.3 billion in ordinary income standalone, which translated to ¥6.7 billion contribution to the consolidated result after deducting goodwill amortization. This demonstrates that while short-term expenses rose, the bank is generating profitable operations.

Q: What drove the divergence between asset-based revenue growth and flow-based revenue decline in Wealth Management? / A: Asset-based revenues hit a record high of ¥38.3 billion because clients continued to deposit funds into equity investment trusts and fund-wrapped services for long-term stability, leading to ¥312.6 billion in net inflows. Conversely, flow-based revenues declined due to market volatility and reduced trading activity in equities. This highlights a strategic shift where clients are prioritizing asset accumulation over active trading during uncertain market conditions, allowing the firm to maintain stable recurring revenue despite weaker transactional volumes.

Q: Why did Global Markets ordinary income fall significantly by 38.6% despite capturing institutional flows? / A: While the division successfully captured institutional investor flows in equities and saw increased activity in equity derivatives, overall ordinary income dropped sharply due to poor performance in overseas Fixed Income, Currencies, and Commodities (FICC). Rising U.S. interest rates led to decreased client flows in overseas markets and challenging portfolio management, which outweighed the solid domestic bond and derivative business. This indicates that the decline was not due to a lack of client engagement but rather external macroeconomic pressures on specific trading desks.

Q: What is the outlook for Global Investment Banking given the mixed signals in deal pipelines? / A: Global Investment Banking actually grew its ordinary income by 22.7% to ¥4.0 billion, driven by strong performance in debt underwriting and domestic M&A. Management noted that while they are still rebuilding the deal pipeline, the current quarter showed resilience compared to broader market trends. This suggests that domestic transactional strength is currently offsetting any slowdown in international deal flow, providing a counterbalance to the weakness seen in the Global Markets division.